Resuscitating Real Business Cycles

Robert King () and Sergio Rebelo ()

No 467, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: The Real Business Cycle (RBC) research program has grown spectacularly over the last decade, as its concepts and methods have diffused into mainstream macroeconomics. Yet, there is increasing skepticism that technology shocks are a major source of business fluctuations. This chapter exposits the basic RBC model and shows that it requires large technology shocks to produce realistic business cycles. While Solow residuals are sufficiently volatile, these imply frequent technological regress. Productivity studies permitting unobserved factor variation find much smaller technology shocks, suggesting the imminent demise of real business cycles. However, we show that greater factor variation also dramatically amplifies shocks: a RBC model with varying capital utilization yields realistic business cycles from small, nonnegative changes in technology.

Keywords: Macroeconomics; Business cycles (search for similar items in EconPapers)
JEL-codes: E10 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2000-01
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Forthcoming in the Handbook of Macroeconomics, edited by Michael Woodford and John Taylor

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Related works:
Chapter: Resuscitating real business cycles (1999)
Working Paper: Resuscitating Real Business Cycles (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:roc:rocher:467

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